What's going on?
Alstom, the French transport group that competes with General Electric (among others), saw its shares jump more than 3% on Monday. It announced a big new contract with US train operator Amtrak, which is owned by the US government.
What does this mean?
Alstom will build 28 new high-speed trains for Amtrak’s Northeast Corridor (it connects Boston, New York and Washington, D.C. as well as other cities). Alstom will also provide maintenance of the trains for at least 15 years. The deal will create 1,000 new jobs, mainly in New York state, where Alstom has a huge facility.
Why should I care?
The bigger picture: This is a good example of how a short-term boost to government spending could help the economy.
A high-speed rail line can boost productivity (think: business people more efficiently traveling between major cities) while also creating jobs for the workers that build the trains. In the short-term, the economy gets a boost from the higher employment (e.g. the workers will spend a good chunk of their income) while it also benefits from the improved infrastructure in the longer term. In recent months, speculation has increased that governments, from Britain to the US to Europe, will increase spending to try to boost their economies in such a way (P.S. we wrote a Weekly Review on this in July; Weekly Reviews are available to Insiders).
For the markets: Stocks of companies that would reap the most immediate benefits from increased government spending have already gone up a lot this year.
The higher likelihood of increased government spending hasn’t gone unnoticed by investors: a popular grouping of global infrastructure stocks has already gone up 15% this year (versus about 7% for the overall US stock market). This, arguably, leaves infrastructure-focused stocks vulnerable should the anticipated increase in government spending not materialize.